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• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP89T00295R000200250001-1
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 115
• Document Creation Date: January 12, 2017
• Document Release Date: May 26, 2011
• Sequence Number: 1
• Publication Date: September 1, 1986
• Content Type: REPORT

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Directorate of C-onfidelitial
Intelligence
in the Big Four
Western Europe:
Structural Economic Change
PAGE NUMBERS
TOTAL NUMBER OF COPIES 7S
DISSEM DATE -_ ~Q - Z (~ ~O
EXTRA COPIES 3
RECORD c~RUER ?O- /~
JOB NUMBER
eanfidentim-
EUR 86-10028
September 1986
copy 353
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Directorate of Confidential
Intelligence
Western Europe:
Structural Economic Change
in the Big Four
A Technical Intelligence Report
This paper was prepared by
[
25X1
Office of European Analysis
25X1
Office of Information Resources. Comments
queries are welcome and may be directed to the Chief,
Issues and Applications, EURA,
Confidential
EUR 86-10028
September 1986
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Western Europe:
Structural Economic Change
in the Big Four
This paper describes from a macroeconomic perspective the scope and
direction of industrial restructuring under way in Western Europe. It
presents detailed information for the period 1970-84 on output, employ-
ment, investment, and trade at the industry level, but in a comprehensive
form so that the relation of individual industries or groups of industries-
such as the high-technology industries-can be gauged against economic
performance as a whole. The data are presented in a form that makes it
easy to compare restructuring patterns among the West European coun-
tries, and between Western Europe, the United States, and Japan.
This paper is not intended to assess why restructuring happened or did not
happen, although some of the data on profits suggest that until lately there
were strong incentives to shift resources out of manufacturing. It is meant,
rather, to pull together information from a wide variety of sources such as
the European Community's computer data base on industry performance,
the United Nations' data base on international trade, and the OECD data
base on standardized unemployment rates (see appendix B) to describe
what happened and to provide essential background analytical data for
those seeking to assess developments and policies in a single country or
industry.
Confidential
EUR 86-10028
September 1986
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Western Europe:
Structural Economic Change
in the Big Four
Summary The West European economies have been undergoing a marked shift in the
Information available structure of their economies. Their manufacturing sectors now account for
as of 30 July 1986 only little more than one-fourth of GDP, down from over 30 percent in
was used in this report.
1970:
? In contrast, the manufacturing sector in the United States has main-
tained a fairly constant share of output over the last 15 years, while in Ja-
pan manufacturing has rapidly expanded.
? Employment in the manufacturing sector has fallen dramatically in
Western Europe in contrast with the experience in the United States and
Japan. From 1970 to 1984, Western Europe lost 6 million manufacturing
jobs, while the United States added 300,000 and Japan gained 600,000.
? Western Europe has lost competitiveness in trade in manufactured goods.
Its world market share has dropped over 7 percentage points since 1970,
while the US share has held roughly steady and Japan and the newly in-
dustrializing countries have experienced large gains.
There has been some shifting within Western Europe toward the high-
technology industries, but the growth of their output has not been very
strong:
? The high-technology industries have been growing only slightly faster
than GDP.
? Despite growing faster than their economies as a whole, West European
high-technology industries have added no new jobs.
? West European high-technology industries overall have been losing
competitiveness. The Big Four have lost even more world market share in
high-tech goods than they did in low-tech goods. From 1975 to 1984 the
Big Four's share fell 5.4 percentage points to 31.4 percent of the world
market for high-tech goods, while its share of the low-tech market fell 4.6
percentage points to 35.9 percent.
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Among the Big Four, West Germany and the United Kingdom have seen a
marked decline in the relative size of their manufacturing sectors since
1970. Manufacturing in France and Italy continued to expand in the
1970s, but peaked around 1980:
? France and Italy have experienced the most rapid growth in real output
of their high-tech industries, but, at 3.7 percent or so per year since 1975,
this growth has not been dramatically faster than the overall GDP
growth rate in these two countries.
? Italy stands out in that its low-technology industries have continued to
grow almost as fast as its high-tech sectors and have done well in world
trade performance.
? From 1975 to 1984, manufacturing output in the United Kingdom fell an
average of 0.8 percent a year. The United Kingdom is the only major
West European country to experience a fall in the absolute level of
manufacturing output over this period. High-tech output grew, but only
by 0.8 percent a year.
? West German high-tech output has grown more slowly than French and
Italian output. Germany has been more successful in shifting resources
from low to high tech, but it has also suffered the greatest loss in its
world market share of high-tech exports.
The weakness in the West European manufacturing sector is at least
partially the result of large decreases in the overall rate of investment and,
in particular, the decline in the share of investment going to the manufac-
turing sector. After a decade of steep decline, an upturn in overall and
manufacturing-sector profit rates has occurred in the last two to three
years.
Government policy has also been shifting in recent years. Although some
policies were developed in the 1970s to foster research, development, and
commercialization in high-technology areas, by far the most effort went
into attempts to cushion the decline of faltering low-technology industries
such as shipbuilding, steel, and textiles. These efforts were aimed at saving
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jobs but they cost governments and consumers huge sums of money and did
not arrest the deterioration of the manufacturing sector. Now, after a
decade of effort to subsidize and protect floundering industries, West
European governments seem more inclined to encourage competition and
market discipline. The policy of privatization in the United Kingdom
launched in the early 1980s has now caught on to varying degrees in other
major West European countries. Moreover, the members of the European
Community have launched an ambitious program to chop down by 1993
internal barriers to trade and competition within the EC.
The upturn in profit rates plus these new industrial policies could lead to
improved investment and manufacturing-sector performance, but still
there are tremendous obstacles that lead us to expect only limited gains.
First, the commitment to privatization is far from complete. London, for
example, has had to back off from several of its planned sales this summer,
and it appears that any effort by the Chirac government to sell off recently
nationalized companies will be sharply contested by the Socialists. Second,
while profit rates have improved, European industry still faces high
marginal tax rates and costly labor protection schemes that inhibit
industrial innovation. Third, we feel that for the most part the West
European business community remains more risk averse and less prone to
gamble on new ventures, products, and processes than its US and East
Asian competitors.
vii Confidential
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Contents
Page
Big Four 1
Employment Shifts 5
West Germany 17
Summary 17
Employment Shifts 23
Productivity Trends 31
Summary 37
Employment Shifts 43
Productivity Trends 51
United Kingdom 57
Summary 57
Employment Shifts 63
Productivity Trends 71
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Summary
77
Employment Shifts
83
Productivity Trends
91
A. Definition of High-Technology Industries
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Western Europe:
Structural Economic Change
in the Big Four
Big Four
Shifts in Production West European manufacturing sectors have shrunk significantly in relative size
over the last 14 years:
? Value added by the manufacturing sector in the Big Four fell from 30.3 percent
of GDP in 1970 to 27.4 percent in 1984.
? Manufacturing output continued to grow in absolute terms over this period, but
at only 1.5 percent a year, two-thirds the rate of overall real GDP growth.
? The West European results differ strikingly from the pattern in the United
States where the relative size of the manufacturing sector remained roughly
unchanged from 1970 to 1984, and from the Japanese case where the relative
size of the manufacturing sector grew rapidly.
Figure 1
Share of GDP Produced by the Manufacturing Sector,
1970 and 1984
0 10 20 30 40 50
84
u
1 Confidential
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Patterns of The pattern of industrial restructuring varies widely among the major West
Restructuring European countries:
? West Germany has suffered a fall in the relative size of its manufacturing sector
since 1970, but the absolute level of manufacturing output has continued to
grow.
? The United Kingdom's manufacturing sector has declined precipitously, falling
from 31.3 percent of total output in 1970 to 24.1 percent in 1984. The United
Kingdom is the only major West European country where manufacturing output
actually fell over this period, measured in 1980 prices.
? Italy has experienced a rise in the relative share of its manufacturing sector, and
France's has remained about constant, although both countries peaked around
1980 and have fallen since.
? The smaller West European countries, taken as a group, show little trend in the
relative size of the manufacturing sector. Some countries (such as the Nether-
lands and Norway) have seen a sharp fall in the share of manufacturing, while
others (such as Finland and Spain) have experienced a sharp rise.
Table 1
Share of Manufacturing in GDP, 1970-84
31.8 31.9 29.8
30.2
26.1 26.5 27.6 25.8
26.2
United Kingdom 31.3 29.8 26.8 24.4
24.1
Italy 27.9 27.3 31.5 29.1
28.8
Big Four 30.3 29.2 29.5 27.2
27.4
Other Western Europe 23.7 24.6 22.8 23.0
NA
28.1 27.6 27.3 25.8
NA
25.0 24.3 24.7 23.4
24.9
30.6 30.1 36.0 38.4
40.8
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High and Low High-technology industries ' are accounting for an increasing share of manufac-
Technology turing output in all the Big Four countries and are growing at a faster rate than
GDP in all but the United Kingdom:
? All of the decline in manufacturing's share of total output in the Big Four can be
traced to declines in the low-technology sectors.
? High-technology industries in the United Kingdom account for a growing share
of total manufacturing output. Output from the high-tech sectors lags real GDP
growth, however, so high-tech industries account for a declining share of GDP.
? In Italy, low-technology industries have been growing nearly as fast as high-tech
industries.
? West German high-tech industries account for both a larger share of manufac-
turing and a larger share of GDP than in the other three countries. French and
Italian high-tech output, however, has been growing faster than German
production since 1975.
`Table 2
Big Four: High-Technology Industries
Share of Total Manufacturing Value Added
and Share of GDP, 1975-84
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Employment Shifts Employment in the manufacturing sector has fallen dramatically in Western
Europe:
? The Big Four have lost 6 million manufacturing jobs since the 1970 peak.
? The service sector has expanded by several million jobs, but not by enough to off-
set manufacturing-sector losses. Total employment in the Big Four declined by
500,000 from 1970 to 1984.
? The European results contrast sharply with the United States and Japan where
manufacturing sector employment has increased since 1970.
Table 3
Employment in the Manufacturing
Sector, 1970-84
9.
6
8.6
8.3 7.8
7
.4
5.
5
5.7
5.3 5.0
4
.9
8.
5
7.7
7.3 6.1
5
.7
5.
5
5.6
5.7 5.5
5
.1 a
29.
1
27.6
26.6 24.4
23
.1
11.3
11.0 10.0
9
.7,
Western Europe 40.
2
38.9
37.6 34.4
32
.8
United States 20.
7
19.5
21.9 20.3
21
.0
Japan 13.
8
13.5
13.7 13.8
14
.4
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High and Low Despite their relatively rapid growth, high-technology industries have not been a
Technology source of new jobs:
? Employment in high-tech industries has fallen less sharply than in low-
technology sectors- except in Italy-but it has still fallen over 500,000 from
1975 to 1983.
? Very few manufacturing sectors, whether high or low tech, gained employment
over this time period. Road motor vehicle production in West Germany and
France and the aerospace industry in West Germany, France, and Italy are
among the few exceptions.
Table 4
Big Four: Employment in High-Technology
Industries, 1975-84
Share of Manufacturing
Employment (percent)
1975 1983
1984 1975 1983 1984
West Germany 1,933 1,768
NA 22.6 23.6 NA
France 1,078 1,000
1,048 19.0 20.3 21.4
United Kingdom 1,486 1,253
1,260 19.4 21.7 22.0
Italy 974 915
NA 17.3 17.3 NA
Big Four 5,471 4,936
NA 19.9 21.0 NA
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Trade in Western Europe increased its net exports of manufactured goods substantially
Manufactures from 1975 to 1984, but at least in the case of the Big Four this gain was due more
to increased imports by the United States than to dynamism in the European
manufacturing sector.
Figure 2
Gain in Net Exports of Manufactured Goods, 1976-84
Western Europe Total net
exports
Net exports
to US
Big Four Total net
exports
Net exports
to US
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Share of World Market Western Europe's share of the total non-Communist world market for trade in
manufactured goods-including intra-European trade-fell sharply, from 61.8
percent in 1975 to 54.7 percent in 1984:
? The Big Four's share of the world export market fell even faster than the overall
West European share. It dropped from 39.7 percent in 1975 to 34.7 percent in
1984.
? Japan and a group of newly industrializing countries picked up the market share
lost by Western Europe.
? The United States' market share fell only slightly.
Figure 3
Share of Non-Communist Exports of Manufactured Goods,
1975 and 1984
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High and Low The losses by the Big Four in their world market share were not limited to low-
Technology technology products: high-tech goods have shown proportionately greater declines
in world market share:
? All the Big Four countries have shown substantial losses in their high-tech world
market share.
? The smaller West European countries have also lost a large amount of trade
share. The overall West European market share in high-tech goods fell from 56.4
percent in 1975 to 46.5 percent in 1984.
? The United States has shown only a slight loss in its world market share since
1975 and even gained share during the period 1980-84 when the dollar was
relatively strong.
Figure 4
Big Four: Share of Free World Exports, 1975 and 1984
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Productivity Trends Labor productivity z has been growing much more rapidly in the Big Pour West
European countries than it has in the United States:
? In the manufacturing sector, however, US productivity growth has been almost
as fast as in the Big Four.
Figure 5
Average Annual Productivity Growth, 1971-84
Total output Big Four
Us
Japan
Manufacturing Big Four
Us
Japan
25X1
25X1
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Productivity Trends Germany and France had considerably higher rates of productivity growth than
(continued) the United Kingdom and Italy. The other West European countries, taken as a
group, performed about the same as the Big Four average.
Table 5
Average Annual Productivity Growth, 1971-84
All Manufacturing
Sectors Sector
United Kingdom 1.9 2.7
Big Four 2.3 3.3
a 1970-83 data.
b 1970-82 data.
United Kingdom and Italy and now closely approach the US level.
2.3
2.3
3.5 b
3.1 b
Average productivity levels in France and West Germany far surpass those in the
Table 6
Productivity Levels:
GDP Per Person Employed, 1960-85
West Germany
58.2
74.2
92.1
95.3
France
57.3
76.4
92.6
94.1
United Kingdom
53.5
61.1
60.6
64.7
Italy
43.2
58.2
68.5
67.5
Big Four
53.5
66.2
78.5
80.6
Japan
27.5
52.5
72.2
79.4
a Figures are indexed so that the US productivity level equals 100 in
each specified year.
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Investment and The, share of GDP going to investment has been falling in Western Europe since
Profit Trends the early 1970s. The Big Four investment ratio was remarkably steady at about 22
percent in the 1960s, years of very fast GDP growth. But after peaking at 22.7 per-
cent in the early 1970s (slightly lower than that for the rest of Western Europe),
the investment ratio has trended sharply downward:
? The drop in investment shares has been the most dramatic in West Germany,
but all of the Big Four countries and the other West European countries taken as
a group have experienced large declines.
? The Japanese investment ratio has also dropped sharply in the last 15 years.
? Only the United States among the major industrial countries has shown a
tendency for the investment ratio to rise.F___1 25X1
Table 7.
Ratio of Aggregate Investment to GDP
25.5
20.4
22.8
20.5
20.4
19.8
23.4
23.3
21.6
20.5
19.2
19.0
18.6
19.5
17.5
16.4
17.4
17.4
21.4
20.6
19.8
19.0
18.6
19.1
22.7
21.1
20.8
19.3
19.1
18.9
Other Western Europe
24.2
23.5
21.9
20.5
20.0
20.0
Western Europe
23.1
21.9
21.2
19.7
19.5
19.3
United States
14.3
14.0
16.3
14.9
16.1
16.6
Japan
35.6
32.5
31.9
30.0
29.1
29.1
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Investment in The proportion of total investment going to the manufacturing sector in the Big
Manufacturing Sector Four has been shrinking. Manufacturing investment as a share of GDP has fallen
even faster than the already rapid fall in the overall investment ratio:
? Big Four investment in the manufacturing sector accounted for 21.3 percent of
total investment in 1970 but only 15.1 percent in 1982.
? The United Kingdom suffered the biggest drop in manufacturing investment
share, from 21.4 percent in 1970 to only 11.4 percent in 1982. Preliminary data
indicate that this rate has changed little since 1982.
? Data for Japan and the United States are not strictly comparable because of dif-
ferent sectoral breakdowns in the national accounts. Nonetheless, the United
States stands apart from Europe. The US manufacturing sector has accounted
for a constant if not growing share of total fixed investment.
Table 8
Investment by the Manufacturing Sector
as a Share of Total Investment, 1972-82
22.
5 16.3 16.9 16.3
20.
2 15.8 16.0 15.0
United Kingdom 21.
4 16.2 15.5 11.4
Italy 20.
2 21.1 19.1 17.2
Big Four 21.
3 16.9 16.7 15.1 a
United States 25.
3 23.8 25.2 25.6
Japan 53.
4 44.6 42.2 41.8
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High and Low There has been some shifting of investment resources within the manufacturing
Technology sector toward the high-tech industries, but in most countries investment in high-
tech sectors now accounts for a smaller share of GDP than it did in the mid-1970s:
? French investment in low-tech industries has declined sharply as a share of GDP,
while investment in the high-tech industries has been relatively stable.
? Germany has recorded a slight increase in the ratio of high-tech investment to
GDP.
? Britain's high-tech industries have been getting an increased share of an ever
smaller manufacturing investment pie. Like low-tech investment, high-tech
investment has been falling as a share of GDP.
? The decline in manufacturing investment in Italy has affected the high-tech
sectors about the same as the low-tech sectors.
Table 9
Big Four: Investment by the Manufacturing Industries
as a Share of GDP, 1975-82
West Germany
France
United Kingdom
a 1976 figure.
b Estimate.
1975
1981
1982
1975
1981
1982
0.9 a
1.0
0.8 b
2.5 a
2.7
2.6 b
0.8
0.9
0.8
2.8
2.4
2.3
0.8
0.5
0.5
2.4
1.5
1.4
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Profit Trends The relative decline in manufacturing output in Western Europe and its lagging
trade performance in manufactures are probably related to lagging investment in
the 1970s and early 1980s, and lagging investment was probably related to falling
profit rates:
? Overall profit shares fell sharply in the late 1970s and early 1980s. Profit shares
in the manufacturing sector fell much faster than in the service sector.
? The rate of return on manufacturing in West Germany and the United Kingdom
fell sharply from 1971 to 1982-much more sharply than for the service sector in
each country.
? Corporate profits also plummeted in France in the late 1970s and early 1980s.
? Unlike the experience in the other Big Four, aggregate profit rates in Italian in-
dustry rose in the 1970s and early 1980s.
? Profit rates overall and in the manufacturing sector in most of the Big Four have
apparently turned upward in the last two or three years, although no significant
shifts in investment have yet been detected.
Figure 6
Big Four: Profit Trends, 1971-85
i i i i I i i i -I i i i
0 1971. 75 80 85
? Profits are defined here as gross operating surplus divided by
gross value added in the manufacturing sector. These figures should
not be used for cross-country comparisons because of differences in
inclusiveness of the data.
Confidential 16
Italy
West Germany
France
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Summary
West Germany
of government-owned industrial assets.
West German policies toward industrial restructuring have been less activist than
those of France or the United Kingdom. The West German Government has
sometimes acted to cushion the fall of low-tech sectors such as shipbuilding and
coal, but Bonn's low-key policies focus more on anticipating market trends and
trying to foster new technology by research and development grants, government
procurement policies, and other strategies. Bonn has made only a few small sales
With a government following a less activist and more market-oriented approach
than its neighbors, the West German economy nonetheless has seen a rapid
shrinking of its manufacturing sector relative to the rest of the economy:
? The share of GDP originating in the manufacturing sector has fallen about 4
percentage points from 1970 to 1984.
average, although not by nearly as much as in the United Kingdom.
? West German manufacturing has contracted more than the West European
West German manufacturing has been shifting gradually toward high-technology
industries:
? Output from high-tech industries has been growing only slightly faster than
GDP.
? The shift to high technology has been significantly slower than that in France.
? The shift has not been enough to arrest an enormous loss in world market share
of high-tech exports.
? The high-tech industries have not added any new jobs.
West Germany's relatively poor performance in manufacturing is probably related
to its relatively poor performance in investment in the manufacturing sector, and
that poor performance is probably related to a rapid decline in profit rates in the
manufacturing sector:
? Total investment as a share of GDP has fallen from over 25 percent in 1970 to
under 20 percent in 1985, while investment in the manufacturing sector has
fallen even faster.
1970s, while profit rates in the expanding service sector have risen.
? West German profit rates in manufacturing have fallen sharply since the early
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Shifts in Production The West German manufacturing sector has been shrinking relative to the
economy as a whole:
? The share of GDP originating in the manufacturing sector has fallen about 4
percentage points since 1970, from 33.8 percent in 1970 to 30.2 percent in 1984.
? Total output from the manufacturing sector has continued to grow, but at only
1.4 percent a year, much less than the GDP growth rate.
? The share of GDP originating in the production of services has risen over 6
percentage points from 1970 to 1984. Most of this gain came from growth in
market services, not government services.
? West Germany had the largest proportionate rise in its service sector among the
Big Four countries.
? The shift away from manufacturing has been more pronounced than the West
European average, and contrasts sharply with the United States, where manu-
facturing's share has remained nearly unchanged since 1970.
Table 10
West Germany: Value Added by Sector as a
Share of GDP, 1980 Prices, 1970-84
Agriculture 2.6
2.4 2.2 2.4
2.1
Fuels 5.4
5.2 5.7 5.2
5.1
Manufactured products 33.8
31.8 31.9 29.8
30.2
Construction 8.6
7.6 7.6 6.7
6.5
GDP growth (index: 1980 =
100).
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Low-Technology All of the decline in manufacturing's share of total output can be traced to declines
Industries in the low-technology industries:
? Iron and steel, food and beverages, and textiles and clothing have all suffered
large declines in relative and absolute output in the period 1976-82.
? Industrial and agricultural machinery boosted its share of manufacturing output,
but it, too, fell as a share of GDP.
? Only road motor vehicles, machinery, and rubber and plastic products rose as a
share of GDP. Road motor vehicle production jumped 17 percent from 1975 to
1984, increasing its share of total manufacturing output almost 3 percentage
points. The industry peaked in 1982, however.
Table 11
West Germany: Low-Technology Sectors'
Value Added as a Share of Total Value Added
in Manufacturing, 1975-84
Iron and steel
5.3.
4.4
4.0
4.4
Nonferrous metals
1.0
1.2
1.1
1.1
Nonmetallic mineral products
4.3
4.4
4.1
4.0
Low-tech chemicals
5.4
2.6
2.6
NA
Industrial and agricultural
machinery
12.6
13.5
13.8
12.7
Road motor vehicles and parts
8.3
10.4
11.6
11.2
Other transportation equipment
1.2
0.8
0.9
NA
Other metal products
8.6
9.2
8.9
8.4
Food and beverages
11.5
10.6
10.8
10.4
Textiles and clothing
5.6
4.9
4.4
4.3
Leather and footwear
0.9
0.8
0.7
0.6
Wood and paper
8.2
8.3
7.5
NA
Rubber and plastic products
3.2
3.9
3.8
NA
Other manufacturing a
0.7
0.1
0
NA
Ratio of low-tech value added
to total manufacturing
76.8
75.1
74.2
NA
Ratio of low-tech value added
to GDP
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High-Technology High-technology industries have increased their share of manufacturing output
Industries and have grown at a slightly faster rate than the West German economy as a
whole:
? The share of high-tech output rose from 23.2 percent of total manufacturing
output in 1975 to 25.8 percent in 1982.
? Almost all of the rise in the relative size of the high-tech group can be traced to
the electronics/electrical equipment sector, which rose from 11.5 percent of total
manufacturing production in 1975 to 13.9 percent in 1982 (14.1 percent in 1984).
? The aerospace industry, while still small, almost doubled its share of total
manufacturing in the period 1976-82.
? Most of the other high-tech industries barely maintained their share of total
manufacturing output, which means that they contributed a smaller share of
total GDP in 1982 than in 1975.
Table 12
West Germany: High-Technology Sectors'
Value Added as a Share of Total Value Added
in Manufacturing, 1975-84
Office machinery and data- 1.7 1.6 1.8
processing equipment
Telecommunications 5.1 6.9
equipment
Aerospace equipment 0.5 0.8 0.9 NA
Ratio of high-tech value 23.2 24.9 25.8 NA
added to total manufacturing
Ratio of high-tech value 7.4 7.9 7.7 NA
added to GDP
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Employment Shifts The composition of employment has shifted even more rapidly than the composi-
tion of output:
? Employment in manufacturing made up only 30.1 percent of total employment
in 1984, compared with 36.6 percent in 1970.
? Unlike manufacturing output, the shift away from employment appears to be
accelerating.
? The manufacturing sector lost over 2 million jobs-23 percent-from 1970 to
1984.
? The agricultural sector lost almost 1 million jobs.
? Many of the lost private-sector jobs were offset by gains in the public sector,
which created nearly 1 million jobs from 1970 to 1980, a 31-percent increase.
The level of public-sector employment has held roughly constant since 1980.
? Despite the additional jobs in the service sectors, the overall economy lost 1.5
million jobs. The unemployment rate displayed the greatest percentage change
of the Big Four, starting at 0.8 percent in 1970 and rising to 8.5 percent in 1984.
Table 13
West Germany: Employment by Sector as a Share
of Total Employment, 1970-84
Total employment (millions) 26.2 25.3 25.8 25.1 24.7
Agriculture 8.5 6.8 5.4 5.4 5.4
Fuels 2.0 2.0 1.9 2.0 2.0
Manufactured products 36.6 33.9 32.2 31.0 30.1
Construction 8.9 8.1 8.3 7.9 7.7
Market services
Government services
32.8 35.3 37.3 38.0 38.8
11.2 13.9 14.9 15.7 16.0
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Low-Technology Employment in the low-tech manufacturing sectors fell 14 percent-almost 1
Industries million jobs-from 1975 to 1983:
? The loss of jobs was particularly severe in the iron and steel industry and in the
traditional consumer goods industries such as food and beverages, textiles and
clothing, and leather and footwear.
? Employment in the production of road motor vehicles rose sharply until 1982 but
declined somewhat thereafter.
Table 14
West Germany: Employment in
Low-Technology Sectors, 1975-83
Share of total manufacturing
employment (percent)
77.4
76.7
76.5
76.4
76.4
Iron and steel 4
40
378
359
340
210
Nonferrous metals
95
85
83
78
79
Nonmetallic mineral products 3
84
391
378
356
350
Low-tech chemicals 3
47
204
181
178
174
Industrial and agricultural 1,1
machinery
88
1,179
1,178
1,148
1,115
Road motor vehicles and parts 6
97 8
818
820
829
826
Shipbuilding
82 8
63
64
58
53
Railway rolling stock N
A
12
13
13
12
Other transportation equipment N
A
21
17
16
15
Other metal products 8
03
800
778
747
850
Food and beverages 6
22
571
565
546
525
Textiles and clothing 7
19
617
570
522
485
Leather and footwear 1
06
93
87
80
75
Wood and paper 7
81
715
685
644
614
Rubber and plastic products 3
06
347
337
329
322
Other manufacturing b
68
72
65
62
20
8 Estimate.
b Includes statistical discrepancy.
25X1
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High-Technology Even though the high-tech sectors were expanding output at a much faster rate
Industries than the low-tech industries, they were not providing new jobs:
? Employment in the high-tech sectors fell much less than in the low-tech sectors,
but as a group the high-tech sectors still lost 165,000 jobs between 1975 and
1983.
? Every high-tech industry except aerospace suffered reductions in employment.
Table 15
West Germany: Employment in
High-Technology Sectors, 1975-83
Share of total manufacturing 22.6 23.3 23.5 23.6 23.6
employment (percent)
Basic industrial chemicals 355 346 345 340 334
Pharmaceuticals 98 97 98 98 96
Office machinery and data- 96 82 82 79 81
processing equipment
Telecommunications 1,163 409 405 384 369
equipment
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Trade in West Germany's trade performance also suggests that its manufacturing sector
Manufactures has not been performing particularly well, despite a huge gain in net exports of
manufactured goods.
Table 16
West Germany: Trade Balance in
Manufactured Goods, 1975-84
Total manufactures
35.0
55.8 61.3
53.9
Low-technology goods
28.4
44.5 51.0
44.3
High-technology goods
6.6
11.3 10.3
9.6
Although West Germany's exports were growing fast enough relative to imports to
increase its trade surplus, they were growing much slower than the world average.
As a result, West Germany has lost a significant share of the world export market
for manufactured goods, and its share of the world market for high-tech goods has
fallen proportionately more than that for low-technology goods
Figure 7
West Germany: Share of World Exports of
Manufactured Goods, 1975 and 1984
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Low-Technology Goods West Germany's low-technology industries-like its high-tech sectors-have
experienced large gains in net exports in recent years, but they have been losing
world market share:
? Although the dollar value of exports of road motor vehicles rose dramatically,
West Germany's share of the burgeoning world market fell from 20.2 percent in
1975 to 19.3 percent in 1984.
? Industrial and agricultural machinery, another big gainer in absolute dollar
terms, also lost significant market share, from 22.6 percent in 1975 to 17.8
percent in 1984.
? More than one-third of West Germany's rise in net exports of low-technology
goods can be explained by trade with just one partner, the United States.
added by the manufacturing industries in 1982.
? Despite losing market share, exports of low-technology goods are very important
to the West German economy and constituted about 16 percent of total value
Table 17
West Germany: Trade Balance in
Low-Technology Goods, 1975-84
Total 28.4
44.5
51.0
44.3
Share of world exports (percent) 17.0
16.3
16.1
15.3
Iron and steel 4
.8
4.8
4.6
3.4
Nonmetallic mineral products 0
.3
0.3
0.7
0.6
Low-tech chemicals 3
.4
7.2
6.1
6.5
Industrial and agricultural 15
machinery
.0
23.3
20.9
18.5
Road motor vehicles and parts 7
.8
18.5
21.2
18.6
Other transportation equipment 1
.9
1.4
1.7
1.3
Other metal products 1
.8
3.1
3.1
2.6
Food and beverages -3
.4
-5.6
-4.0
-3.9
Textiles and clothing -2
.4
-6.1
-3.5
-3.7
Leather and footwear -0
.8
-1.9
-1.3
-1.4
Wood and paper 0
0
1.1
1.2
Rubber and plastic products 0
.4
0.7
0.8
0.9
Other manufacturing a 0
.2
0
0.3
0.4
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High-Technology Goods West Germany has lost world market share in seven of eight of the high-
technology sectors, even though net exports continued to rise in most of them:
? West Germany has the highest level of high-tech exports among the Big Four
and the biggest share of the world market. It also has been experiencing the
sharpest erosion of its market share.
? Only one industry, aerospace (largely because of the success of Airbus), gained
world market share over this period, moving from 3.9 percent in 1975 to 14.5
percent in 1984.
? Electrical equipment categories did not enjoy gains in net exports and suffered
large losses in market share.
? Office machinery and data-processing equipment became a net deficit item.
German exporters of these products lost almost half their world market share.
high-tech goods than is true for low-tech goods.
? Net exports of high-technology goods constitute a smaller share of total output of
Table 18
West Germany: Trade Balance in
High-Technology Goods, 1975-84
Total 6.6 11.3 10.3 9.6
Share of world exports (percent) 15.7 15.1 14.3 12.7
Basic industrial chemicals 1.
3 2.9 2.2 2.9
Pharmaceuticals 0.
5 1.0 0.9 0.9
Office machinery and data- 0.
processing equipment
2 -0.2 -0.1 -0.6
Consumer electronics 0.
1 -0.1 -0.3 -0.5
Other electrical equipment 3.
3 5.7 5.5 4.5
Scientific instruments 0.
8 1.5 1.4 1.3
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Productivity Trends Labor productivity growth in the last 15 years has been only about half that of the
1950s and 1960s:
? West German productivity grew at an average annual rate of 4.9 percent a year
from 1953 to 1970, compared with 2.6 percent from 1971 to 1984.
? Productivity growth was much faster in the declining manufacturing sector-
where employment was falling-than in the rapidly growing service sector.
Productivity actually declined in the public sector during the period 1971-84.
? Productivity grew about 3.2 percent a year in the manufacturing sector during
the period 1971-84. This rate is not significantly higher than that in the United
States which-unlike West Germany-has gained manufacturing jobs.
Figure 8
West Germany: Average Annual Productivity Growth, 1971-84
Total economy
Manufacturing
Total services
Market services
Government services
Agriculture, fuels, and
construction
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Investment and The slow growth in the manufacturing sector and the loss in world market share
Profit Trends are probably related to the decline in the share of GDP devoted to investment over-
all and to the decline in the share of investment going to the manufacturing sector
in particular:
? Total West German investment as a share of GDP has fallen from 25.5 percent
in 1970 to 19.8 percent in 1985.
? Fixed capital formation in the manufacturing sector has fallen from 5.7 percent
of total GDP in 1970 (22.5 percent of total investment) to 3.3 percent of GDP
(16.3 percent of total investment) in 1982.
? This sharp decline in West German manufacturing-sector investment resembles
behavior in the other West European countries, but it is far different from the
sharp increase in investment in the US manufacturing sector.
? Fixed capital formation in the private-sector services industry has maintained its
share of total output and significantly increased its share of total investment.
Table 19
West Germany: Investment by
Sector as a Share of Total Investment, 1970-85
Agriculture 3.3 3.2 2.8 2.7 NA
Fuels 5.2 8.6 6.1 7.5 NA
Manufactured products 22.5 16.3 16.9 16.3 NA
Construction 2.6 1.6 1.9 1.3 NA
Market services 49.9 53.4 57.5 59.1 NA
Government services 16.5 16.9 14.8 13.1 NA
Total investment as a share 25.5 20.4 22.8 20.5 19.8
of GDP
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Low-Technology Investment in low-technology industries as a group has not changed much as a
Industries share of total manufacturing-sector investment:
? Investment in the iron and steel industry has seen a steep drop while investment
in the production of road motor vehicles has increased dramatically.
Table 20
West Germany: Low-Technology Sectors'
Investment as a Share of Total
Investment in Manufacturing Sector, 1976-83
Industrial and agricultural 8.
machinery
8
9.4
9.7 9.
6
Railway rolling stock 0.
1
0.1
0.1
Other transportation equipment 0.1
0.1
0.1
Other metal products 6.
8
6.8
6.3 6
.2
Food and beverages 10.
9
9.7
10.3 10
.8
Textiles and clothing 4.
2
3.2
2.6 3
.7
Leather and footwear 0.
4
0.3
0.3
Wood and paper 7.
6
8.8
7.7 8
.0
Rubber and plastic products 3.
5
4.1
3.9 4
.1
Other manufacturing b 0.
6
0.2
0.3 0
.4
Ratio of low-tech investment 73.
to total manufacturing
investment
3
74.5
73.6 74
.3
Ratio of low-tech investment 12.
to total investment
5
Ratio of low-tech investment 2.
to GDP
5
a Estimate.
b Includes statistical discrepancy.
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High-Technology There has been no shift in the allocation of investment toward the high-technology
Industries sectors:
? Investment in the high-tech sectors has remained at about 26 percent of total
manufacturing investment from 1976 to 1981. Partial data for 1982-83 do not
reveal any significant changes from the 1981 observations.
? France and the United Kingdom have been much more successful at shifting
investment toward the high-tech sectors than West Germany.
? Within the high-tech group, the electrical/electronic sector and the aerospace
industry have increased their share of total manufacturing investment; the basic
industrial chemicals industry has seen a large shrinkage of its share.
Table 21
West Germany: High-Technology Sectors'
Investment as a Share of Total
Investment in Manufacturing, 1976-83
Office machinery and data-
processing equipment
3.1
3.4
3.6
Other electrical equipment
4.9
5.3
5.4
Scientific instruments
0.9
1.3
1.3
Aerospace equipment
0.5
0.6
0.8
0.9 a
Ratio of high-tech investment
to total manufacturing
investment
26.7
25.5
26.4
25.7 a
Ratio of high-tech investment
to total investment
4.6
Ratio of high-tech investment
to GDP
0.9
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Rates of Return The decline in investment in West Germany is almost surely related to very large
declines in profit shares and rates of return on capital:
? The rate of return on output and capital stock in the manufacturing sector fell
sharply from 1971 to 1982.
? Rates of return overall for the West German economy have fallen much less,
while profit shares have increased in the market-services sector.
? Another indicator of trends in the profitability of investment, the ratio of the
market value of existing assets to the replacement cost of those assets, has been
estimated to have turned sharply upward since 1982 but still to be below 1.0, the
level at which new investment becomes attractive.
Table 22
West Germany: Profit Shares
and Rates of Return, 1971-82
Gross operating surplus/ 38.6 36.1 36.3 37.1
gross value added
Gross operating surplus/ 41.5 39.5 40.0 43.3
gross value added
Gross operating surplus/ 32.7 29.1 26.8 26.9
gross value added
Gross operating surplus/ 17.5 13.7 12.9 12.1
gross capital stock
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Summary
protection, and nationalization.
The French Government has intervened more actively than Bonn in industrial
restructuring and development. Both countries have used research and develop-
ment grants, government procurement policies, and other means to encourage
high-technology sectors. France, however, generally uses a more formal planning
structure and has been more likely than West Germany to counter undesirable
market signals by providing subsidies, encouraging consolidation, offering import
This policy approach probably helps to explain why French low-tech industries
have been declining less quickly than those in West Germany. The French have
seen a smaller decline in the relative size of their manufacturing sector and a
faster growing high-technology industry than most of their neighbors:
? Manufacturing now contributes about the same proportion of GDP as it did 15
years ago.
? French high-tech industries have been increasing output at a much faster rate
than those in West Germany and the United Kingdom.
? Although the manufacturing sector is growing at about the same rate as the
economy, it has experienced declining employment. Job losses were especially
severe in the low-tech industries. All of the new job creation in the last decade
has come from the low-productivity service sector.
? The French have lost world market share in exports of high-tech goods, but they
have lost proportionately less than the other three countries. The French have in-
creased their market share in three out of eight high-tech categories.
? As in West Germany and the United Kingdom, the manufacturing sector has
been receiving a smaller and smaller share of total investment resources. This de-
clining amount of resources has been shifting toward the high-tech industries.
appreciable impact on investment
? Profit rates have turned up in the last few years, but this fact has as yet had no
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Shifts in Production France has experienced only modest shifts among the major sectors.of the
economy:
? The share of GDP originating in the manufacturing sector has varied up and
down over the last 15 years, first rising to 27.6 percent in 1980, then slipping
down to its 1970 level of about 26 percent.
? The share of GDP originating in the production of services has risen from 54 to
59 percent from 1970 to 1984. This gain came entirely from the robust growth in
the market service sector, not government services.
Table 23
France: Value Added by
Sector as a Share of GDP,
1980 Prices, 1970-84
Fuels
4.2
4.1
4.6
4.2
4.4
4.3
Manufactured products
26.1
26.5
27.6 2
5.8
25.9
26.2
Construction
9.8
9.1
7.3
6.8
6.6
6.2
Market services
41.2
43.5
43.5 4
6.6
46.7
58.7
Government services
13.2
12.3
12.5 1
2.0
12.0
GDP growth (index: 1980 =
70.0
85.2
100.0 10
2.2
103.2
104.9
100)
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Low-Technology The French manufacturing sector has been shifting gradually away from low-
Industries technology industries:
? The low-tech sectors accounted for 77.2 percent of manufacturing output in
1984, compared with 80.1 percent in 1975.
? Most of the decline came in the production of basic metals and metal products,
although industrial and agricultural machinery also showed a significant decline.
1981, and then leveled off.
? Road motor vehicle production increased dramatically from 1975 to 1980, rising
from 8.7 percent of total manufacturing production in 1975 to 11.1 percent in
Table 24
France: Low-Technology Sectors'
Production Value as a Share of
Total Production Value in Manufacturing, 1975-84 a
Iron and steel
6.3
5.2
5.1
5.7
Nonferrous metals
1.9
2.2
2.0
1.7
Nonmetallic mineral products
4.3
4.5
4.4
3.7
Low-tech chemicals
4.6
4.9
5.0
4.0
Industrial and agricultural
machinery
7.1
6.3
6.1
5.7
Road motor vehicles and parts
8.7 1
0.9
11.1
11.0 b
Shipbuilding
1.3
0.5
0.6
0.6 b
Railway rolling stock
0.5
0.3
0.3
0.2 b
Other transportation equipment 0.4
0.4
0.3
0.2 b
Other metal products
7.7
8.0
7.8
7.4
Food and beverages
17.2 1
6.1
16.6
18.0
Textiles and clothing
6.7
5.9
5.4
5.3
Leather and footwear
1.3
1.3
1.2
1.1
Wood and paper
8.1
8.7
8.5
8.4 b
Rubber and plastic
products
3.1
3.5
3.3
3.2
Other manufacturing c
0.9
0.8
1.0
1.0 b
Ratio of low-tech value added
to total manufacturing b
80.1 7
9.5
78.7
77.2 b
Ratio of low-tech value added 21.2
to GDP b
a Value-added data are'not available by sector.
b Estimate.
c Includes statistical discrepancy.
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? Value added in the high-tech industries grew at about 3.8 percent a year between
1975 and 1984, compared with a real GDP growth rate of 2.3 percent a year.
? The aerospace industry appeared to grow the most rapidly, but large gains were
also noted in chemicals, pharmaceuticals, and electronics.
? High-tech industries in France have been growing at a much faster rate than in
West Germany or the United Kingdom. F__~ 25X1
Table 25
France: High-Technology Sectors'
Production Value as a Share
of Total Production Value in Manufacturing, 1975-84
Office machinery and data- 1.5
1.5 1.6
processing equipment
Telecommunications equipment
1.8 1.8 12.0
Consumer electronics 9.0
2.6 2.6
Other electrical equipment
5.0 4.9
Scientific instruments 0.7
0.7 0.6
Aerospace equipment 2.6
3.0 3.3 3.4-
Ratio of high-tech value added 19.9 20.5 21.3 22.8-
to total manufacturing
Ratio of high-tech value added 5.3 a
to GDP
High-Technology High-technology industries have increased their share of manufacturing output
Industries and have grown much faster than the economy as a whole:
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Employment Shifts The composition of employment, unlike that of output, has experienced a
pronounced shift away from the manufacturing sector toward services:
? Employment in the manufacturing sector has slipped between 1970 and 1984,
losing over one-half million jobs. While the overall economy gained 300,000 jobs
in that period, it has lost 400,000 since 1980.
? The agricultural sector lost over 1 million jobs.
? Many of the lost jobs in manufacturing and agriculture were made up by gains
in service-sector employment. Both market and government services showed
large increases in employment over this period.
? Because of the minuscule growth in overall employment, France's unemployment
worsened severely from 2.4 percent in 1970 to 9.7 percent in 1984 (and rose to
10.1 percent in 1985).
Table 26
France: Employment by Sector
as a Share of Total Employment, 1970-84
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Low-Technology Employment in the low-tech manufacturing sectors fell by more than 700,000
Industries from 1975 to 1984, accounting for almost all the manufacturing sector's decline in
employment:
? Most of the low-tech industries lost jobs. Iron and steel, metal products, and
machinery lost the most.
? Although the food and beverage sector's production increased by over 20 percent
between 1975 and 1984, employment grew only 6 percent. Road motor vehicles'
employment grew only 3 percent while production increased almost 50 percent.
Table 27
France: Employment in
Low-Technology Sectors, 1975-84
Total 4,5
87
4,270
4,112
3,838-
Share of total manufacturing
employment (percent)
81.0
80.6
80.4
78.6 a
Iron and steel 3
02
220
208
194
Nonferrous metals
72
61
60
58
Nonmetallic mineral products 2
89
264
254
233
Low-tech chemicals 1
93
183
181
166
Industrial and agricultural 4
machinery
16
372
367
348
Road motor vehicles and parts 5
44
566
540
560-
Shipbuilding
72
38
38
40-
Railway rolling stock
26
19
20
19 a
Other transportation equipment
27
26
24
23 a
Other metal products 5
80
569
552
396
Food and beverages 4
63
467
464
489
Textiles and clothing 6
38
539
501
470
Leather and footwear 1
33
117
111
105
Wood and paper 5
36
518
498
492a
Rubber and plastic products 2
30
241
229
221
Other manufacturing b
67
70
65
64-
a Estimate.
b Includes statistical discrepancy.
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? Employment in high-technology industries rose steadily as a share of total
manufacturing employment.
industries.
? Employment rose in absolute terms in the pharmaceutical and aerospace
Table 28
France: Employment in
High-Technology Sectors, 1975-84
Total
1,0
78
1,031
1,004
1,048 a
Share of total m
employment (pe
anufacturing
rcent)
1
9.0
19.4
19.6
21.4 a
Basic industrial
chemicals
12
3
116
106
99
Pharmaceutical
s
7
8
73
75
100
Office machiner
processing equi
y and data-
pment
5
4
56
56
Telecommunica
tions equipment
127
125
Consumer elect
ronics
6
35
153
157
Other electrical
equipment
322
300
Scientific instru
ments
66
57
53
Aerospace equi
pment
1
22
127
132
High-Technology Although output was up sharply in the high-tech industries, employment declined
Industries slightly from 1975 to 1984:
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Trade in France maintained a stable level of net exports of manufactured goods in the
Manufactures period 1975-84, except in 1982, but its share of the world export market for
manufactures declined sharply:
? Net exports of high-tech goods almost tripled from 1975 to 1984, more than
compensating for the fall in low-tech net exports.~~ 25X1
Table 29
France: Trade Balance in
Manufactured Goods, 1975-84
But France, like West Germany and the United Kingdom, has lost a significant
share of the world export market for manufactured goods.
Figure 9
France: Share of World Exports of Manufactured Goods,
1975 and 1984
47
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Low-Technology Goods Although net exports of low-technology manufactured goods have generally
remained high, the French share of the world export market dropped:
? Road motor vehicles, which enjoyed a dramatic increase in production, experi-
enced a slight decline in the value of net exports and a significant loss in market
share, dropping from 10.6 percent in 1975 to 7 percent in 1984.
? French exports of industrial and agricultural machinery slipped from 8.5 percent
of the world market in 1975 to only 6.4 percent in 1984.
? France fell from being the fourth-largest exporter of textiles and clothing in
1975 to the sixth-largest in 1984.
Table 30
France: Trade Balance in
Low-Technology Goods, 1975-84
Total 8
.8
8.9
3.8
7.2
Share of world exports (percent) 9
.3
9.0
8.0
7.7
Iron and steel 1
.2
1.9
1.5
1.8
Nonferrous metals -0
.8
-1.5
-1.0
-0.7
Industrial and agricultural 1
machinery
.7
1.4
0.7
1.1
Road motor vehicles and parts 3
.5
5.4
2.3
3.0
Other transportation equipment 0
.8
1.1
1.1
1.4
Other metal products 0
.6
0.8
0.7
0.6
Food and beverages 0
.8
1.8
1.4
1.3
Textiles and clothing 0
.4
-1.0
-1.5
-1.2
Leather and footwear 0
.1
-0.3
-0.4
-0.4
Wood and paper -0
.6
-1.6
-1.6
-1.3
Rubber and plastic products 0
.5
0.7
0.4
0.6
Other manufacturing a 0
.1
-0.1
-0.4
-0.3
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C;ontidentiai
High-Technology Goods France experienced a large gain in net exports of high-tech goods, but its world
trade share slipped-from 7.7 percent in 1975 to 7.0 percent in 1984:
? France lost market share in five out of eight of the high-tech categories, but its
loss was less than any of the other Big Four. France also showed the largest in-
crease among the Big Four in the dollar value of net exports of high-tech goods.
? The aerospace industry did especially well, with net exports increasing dramati-
cally and France's world market share rising from 7.3 to 11.2 percent.
? The basic chemicals industry also experienced a dramatic increase in both net
exports and market share to become the third-largest exporter in 1984 with 10
percent of the world market.
Table 31
France: Trade Balance in
High-Technology Goods, 1975-84
Office machinery and data- -0.3 -0.6 -1.2 -1.0.
processing equipment
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Productivity Trends Labor productivity growth over the period 1971-84 was only about half that of the
1950s and 1960s:
? French productivity grew at an average annual rate of 4.7 percent a year from
1953 to 1970 compared with 2.8 percent from 1971 to 1984.
? Productivity grew about 3.9 percent a year in the manufacturing sector during
the period 1971-84.
? Productivity in the service sector-private and public-grew at only half that
rate. However, France is the only Big Four country to have boosted productivity
in the public services sector.
Figure 10
France: Average Annual Productivity Growth, 1971-848
Total economy
Manufacturing
Total services
Market services
Government services
Agriculture, fuels, and
construction
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Investment and Total fixed capital formation as a share of GDP fell from 23.4 percent in 1970 to
Profit Trends 19.0 percent in 1985:
? Fixed capital formation in the manufacturing sector fell even more sharply, from
about 4.7 percent of total GDP in 1970 to 3.3 percent in 1984.
? The sharp decrease in French investment in the manufacturing sector resembles
behavior in the other West European countries, but it is far different from the in-
crease in investment in US manufacturing.
? The downturn in investment is probably related to sharp falls in profit rates
during the 1970s.
? The ratio of gross operating surplus to value added for corporations fell from a
peak of 31.5 percent in 1971, to about 25 percent in the late 1970s, to a trough of
23.8 percent in 1982.
? This profit trend has turned around in the last several years, exceeding 27
percent in 1985, but investment shares have continued to fall since 1982.
Table 32
France: Investment by Sector as a
Share of Total Investment, 1970-84
Fuels 6.3 6.4 9.0 9.3 9.1 8.6
Manufactured products 20.2 15.8 16.0 15.0 15.1 17.1
Construction 3.0 2.5 2.2 2.1 2.0 1.9
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Low-Technology Investment in low-technology industries as a group'has declined substantially as a
Industries share of total manufacturing-sector investment and as a share of GDP:
? Investment in the iron and steel industry has plummeted from 11.1 percent of to-
tal manufacturing investment in 1975 to only 4.6 percent in 1984.
? The share of investment going to the motor vehicle industry rose in the late
1970s but has been falling for the past several years.
? The food and beverage industry has substantially increased its share of
investment resources.
Table 33
France: Low-Technology Sectors'
Investment as a Share of Total
Investment in Manufacturing, 1975-84
Iron and steel
11.1
4.1
3.4
3.8
4.6
Nonferrous metals
3.2
1.8
1.8
1.3
1.8
Nonmetallic mineral product
s 6.9
7.6
7.8
6.6
6.4
Low-tech chemicals
5.2
4.5
4.7
4.6
4.3
Industrial and agricultural
machinery
3.9
4.5
4.4
4.4
4.2
Other transportation equipme
nt 0.3
0.3
0.2
0.2
0.2 a
Other metal products
6.6
7.2
7.1
7.2
6.5 a
Food and beverages
11.8
12.2
13.3
13.8
15.9
Textiles and clothing
4.4
4.1
3.8
4.7
5.1
Leather and footwear
0.7
0.7
0.6
0.8
0.7
Wood and paper
7.1
8.0
6.4
7.1
7.0 a
Rubber and plastic products
2.9
4.0
3.8
3.6
3.7
Other manufacturing b
0.7
0.5
0.9
0.7
0.7 a
Ratio of low-tech investment
total manufacturing investme
to 77.0
nt
75.4
73.4
73.5
73.7-
Ratio of low-tech investment
total investment
to 12.2
12.1
11.3
11.0
12.6 a
Ratio of low-tech investment
GDP
to 2.8
2.6
2.4
2.3
2.4 a
a Estimate.
b Includes statistical discrepan
cy.
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basic chemicals industry has experienced a large decrease.
? The aerospace industry has seen a very large increase in investment, while the
Table 34
France: High-Technology Sectors'
Investment as a Share of Total
Investment in Manufacturing, 1975-84
Basic industrial chemicals
5.8
4.5
4.8
3.0
3.5
Pharmaceuticals
1.5
1.1
1.4
1.8
2.2
Office machinery and data-
processing equipment
5.3
6.6
6.8
6.8
Telecommunications equipment
1.6
1.5
1.7
1.8
17.9
Consumer electronics
2.0
2.7
2.8
3.3
Other electrical equipment
4.3
5.0
5.2
5.5
Scientific instruments
0.7
0.5
0.5
0.6
Aerospace equipment
1.8
2.7
3.4
3.7
2.7-
Ratio of high-tech investment
to total manufacturing
investment
23.0
24.6
26.6
26.5
26.3 a
Ratio of high-tech investment
to total investment
3.6
3.9
4.1
4.0
4.5 a
Ratio of high-tech investment
to GDP
0.8
0.8
0.9
0.8
0.9 a
High-Technology High-technology sectors have been capturing a greater share of total investment,
Industries but, measured as a share of GDP, high-tech investment has been flat over the last
10 years:
55 Confidential
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United Kingdom
Summary The wave of nationalizations by the UK Government in the early 1970s to help
floundering companies in a variety of industries-such as shipbuilding, aerospace,
automobiles, and machine tools-did not result in enhanced investment or
commercial success in most cases. The British manufacturing sector continued to
decline, registering by far the largest shrinkage among the Big Four:
? Only the United Kingdom since 1970 has seen a fall in the absolute as well as the
relative level of manufacturing output.
? Output from British high-technology industries is at least growing in absolute
terms, but, unlike the experience in the other Big Four countries, high-
technology industries are growing at a slower rate than the economy as a whole.
? The United Kingdom has suffered a big loss in its world market share in both
low- and high-tech categories. Among the Big Four the United Kingdom has the
worst net trade balance in manufactured goods.
? As in West Germany and France, the United Kingdom's poor manufacturing
performance is probably related to sharply falling investment rates, which in
turn are probably related to sharply falling profit rates.
Prime Minister Thatcher's shift to privatization of industry appears to have
contributed to increased sales and profits in most of the firms involved, but it is dif-
ficult to tell if these results are due to new ownership or generally improved
economic conditions.
Recent UK data reveal two positive developments. First, profit shares, both overall
and in manufacturing, have turned sharply upward. This should encourage
additional investment although no major shifts have yet been discerned. Second,
the recent drastic cuts in UK manufacturing employment have led to manufactur-
ing productivity growth outdistancing France and West Germany (and the United
States) in the last few years. If continued, both these trends could spell improved
manufacturing-sector performance and increased competitiveness.
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Shifts in Production The-British economy is undergoing a drastic shift away from manufacturing:
? The share of GDP originating in the manufacturing sector has fallen 7
percentage points since 1970 and now constitutes only 24.1 percent of GDP,
lowest among the Big Four West European countries.
? Total output from the manufacturing sector has been falling. From 1975 to
1984, manufacturing output fell an average 0.8 percent a year. The United
Kingdom is the only major West European country to experience a fall in the ab-
solute level of manufacturing output over this period.
? The share of GDP originating in the production of services has risen over 6
percentage points from 1970 to 1984. Most of this gain came from growth in
market services.
? The contribution of government services to total output peaked in the 1970s and
has been falling since.F___1 25X1
Table 35
United Kingdom: Value Added
by Sector as a Share of GDP,
1980 Prices, 1970-84
Agriculture
2.0
1.5
1.7
1.9
1.7
1.8
Construction
6.9
6.7
6.3
5.6
5.5
5.5
Market services
37.3
39.4
38.6
41.6
43.0
58.6
Government services
15.1
16.7
16.5
15.8
15.2
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Low-Technology Almost all of the decline in manufacturing's share of total output can be traced to
Industries declines in the low-technology industries:
? Iron and steel, textiles and clothing, and some categories of chemical production
have all suffered sharp declines in relative and absolute output between 1975 and
1982.
? Value added in the iron and steel sector (in 1980 prices) fell over 60 percent from
1975 to 1982.
? Only food and beverages increased its output in absolute terms (1980 prices).
but that indicates a drop in output of over 14 percent.
? Road motor vehicle production, a dynamic sector in West Germany and France
in the 1970s, has remained a fairly constant share of total UK manufacturing,
Table 36
United Kingdom: Low-Technology Sectors'
Value Added as a Share of Total Value
Added in Manufacturing, 1975-83
Industrial and agricultural
machinery
10.7
12.0
10.1
9.9
9.3
Road motor vehicles and parts
5.6
6.0
5.7
5.5
5.3
Shipbuilding
1.3
1.1
1.5
1.5
1.7
Railway rolling stock
0.4
0.6
0.7
0.6
0.5
Other transportation equipment 0.3
0.2
0.1
0.1
0.2
Other metal products
7.1
6.5
6.2
6.4
6.4
Food and beverages
18.1
19.4
21.7
22.0
21.8
Textiles and clothing
6.7
5.4
5.0
4.8
5.6
Leather and footwear
1.1
0.9
0.9
0.8
Wood and paper
9.5
10.0
10.1
10.1
9.9
Rubber and plastic products
3.2
3.5
3.3
3.3
3.4
Other manufacturing a
0.5
0.8
0.9
0.5
NA
Ratio of low-tech value added
to total manufacturing
80.7
78.8
78.5
77.3
NA
Ratio of low-tech value added 24.0
to GDP
21.1
19.3
18.9
NA
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High-Technology High-technology industries have increased their share of manufacturing output
Industries but have grown slower than the UK economy as a whole:
? The share of high-tech output rose from 19.3 percent of total manufacturing
output in 1975 to 22.7 percent in 1982, but as a share of GDP high-tech output
fell from 5.7 percent in 1975 to 5.5 percent in 1982.
? Unlike the low-tech industries, the high-tech group registered an overall gain in
output from 1975 to 1982, although the gain was very small-only 0.7 percent a
year.
? Pharmaceuticals was the biggest gainer with value added increasing 53 percent
between 1975 and 1982 (measured in 1980 prices).
? Output of basic industrial chemicals and scientific instruments suffered both
relative and absolute declines.
Table 37
United Kingdom: High-Technology Sectors'
Value Added as a Share of Total Value Added
in Manufacturing, 1975-83
Basic industrial chemicals 4.4
3.8
3.9 3.9 NA
Pharmaceuticals 1.4
2.0
2.2 2.4 NA
Telecommunications equipment
3.9
4.2 5.7
Consumer electronics 8.4
1.1
1.1 10.6
Office machinery and data 1.0
processing equipment
1.3
1.2 1.5
Aerospace equipment 2.6
3.3
3.4 3.4 3.2
Ratio of high-tech value added 19.3
to total manufacturing
21.2
21.5 22.7 NA
Ratio of high-tech value added 5.7
to GDP
5.7
5.3 5.5 NA
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Employment Shifts The composition of employment has shifted even more rapidly away from the
manufacturing sector than has output:
? Overall employment grew slightly in the 1970s but almost 2 million jobs have
been lost since 1980.
? The unemployment rate soared from 3.0 percent in 1970 to 13.0 percent in 1984
(13.2 percent in 1985), the highest rate among the Big Seven.
? Employment in the manufacturing sector fell one-third from 1970 to 1984, a loss
of almost 3 million jobs.
? The fuels sector now accounts for a much larger share of output but has not add-
ed any new employment.
? Employment in government services provides the greatest share of total employ-
ment in the Big Seven. Public service jobs are no longer growing in either an ab-
solute or a relative sense.
Table 38
United Kingdom: Employment by Sector
as a Share of Total Employment, 1970-84
Total employment (millions)
24.4
24.7 25.0 23.7 23.5 23.9
Agriculture
3.2
2.7 2.6 2.7 2.7 2.6
Fuels
3.3
2.9 2.8 2.9 2.8 2.6
Manufactured products
34.7
31.1 28.4 25.6 24.7 24.0
Construction
6.8
6.6 6.5 6.2 6.1 6.3
Market services
37.2
38.0 40.6 42.4 43.2 44.6
Government services
14.8
18.7 19.1 20.2 20.5 19.9
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Low-Technology Employment in low-tech manufacturing sectors fell almost 30 percent, 1.7 million
Industries jobs, from 1975 to 1984:
? Employment fell in every low-tech industry.
? The loss of jobs was particularly severe in the iron and steel industry (down 62
percent), shipbuildin (down 51 percent), and textiles and clothing (down 43
percent).
Table 39
United Kingdom: Employment in
Low-Technology Sectors, 1975-84
Share of total manufacturing
employment (percent)
80.6
80.0
79.3
78.3
78.0
Iron and steel 4
28
252
208
170
165
Nonferrous metal
99
88
78
64
63
Nonmetallic mineral products 3
19
289
293
269
268
Low-tech chemicals 1
99
195
180
148
151
Industrial and agricultural 8
machinery
90
903
765
676
673
Road motor vehicles and parts 5
13
522
441
384
372
Shipbuilding 1
61
141
98
91
79
Railway rolling stock
50
48
47
38
34
Other transportation equipment
26
25
25
20
22
Other metal products 5
73
547
478
442
449
Food and beverages 8
11
761
734
694
686
Textiles and clothing 8
52
682
588
498
486
Leather and footwear 1
25
103
91
82
81
Wood and paper 7
85
758
700
667
676
Rubber and plastic products 2
68
272
243
216
218
77
76
73
35
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High-Technology Employment in high-tech industries fell sharply from 1975 to 1984, although not
Industries by nearly as much as in the low-tech industries:
? Only the pharmaceutical industry has registered an increase in employment
during the period 1975-84. All other high-tech sectors have lost jobs.
? The high-tech industries increased their share of manufacturing employment but
fell as a share of total employment because of manufacturing's sharply shrinking
share of total employment.
Table 40
United Kingdom: Employment in
High-Technology Sectors, 1975-84
Share of total manufacturing
employment (percent)
19.4
20.0
20.7
21.7
22.0
Office machinery and data-
processing equipment
51
53
45
44
46
Other electrical equipment
377
340
Scientific instruments
155
107
99
95
99
Aerospace equipment
242
236
243
212
207
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Trade in Britain's trade performance also highlights weakness in its manufacturing sector:
Manufactures
? British net exports of manufactured goods have fallen sharply, from a positive
$4.3 billion in 1980 to a negative $9.1 billion in 1984.
? Among the Big Four West European countries, only the United Kingdom
experienced a worsening trade balance in manufactured goods.
Table 41
United Kingdom: Trade Balance in
Manufactured Goods, 1975-84
Total manufactures 3.0
4.3
-
0.3
-9.1
Low-technology goods 1.2
0.5
-
2.6
-8.3
High-technology goods 1.8
3.8
2.3
-0.8
The United Kingdom recorded the biggest proportionate decline among the Big
Four in its world market share for manufactured goods, with its share declining in
both low- and high-technology categories.
Figure 11
United Kingdom: Share of World Exports of
Manufactured Goods, 1975 and 1984
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Low-Technology Goods The United Kingdom's trade balance in low-technology manufactured goods has
fallen from a surplus of $1.2 billion in 1975 to a deficit of $8.3 billion in 1984:
? Most of the low-tech sectors have suffered large declines in net exports since
1980. Only iron and steel and other metal products have registered significant
improvement.
? Industrial and agricultural machinery, road motor vehicles, and textiles and
clothing have suffered the largest declines in net trade balances. The United
Kingdom slipped from being the third-largest exporter of machinery (9.3 percent
of the world market) in 1975 to fourth place (7.1 percent of the market) in 1984.
Table 42
United Kingdom: Trade Balance in
Low-Technology Goods, 1975-84
Total
1
.2
0.5
-2.6
-8.3
Share of world
exports (percent) 7
.5
7.8
6.2
5.7
Iron and steel
-0
.3
-1.1
-0.1
0.1
Nonferrous met
als -0
.6
-1.7
-0.5
-0.5
Nonmetallic mi
neral products 0
.2
0.3
0.2
0
Low-tech chemi
cals 1
.1
3.2
2.2
1.6
Industrial and a
machinery
gricultural
Road motor veh
icles and parts 0
.9
-0.6
-2.5
-3.5
Other transport
ation equipment 0
.6
0.7
0.4
0.6
Other metal pro
ducts 0
.6
1.1
3.1
2.8
Food and bevera
ges -4
.0
-4.1
-3.8
-4.1
Textiles and clo
thing -0
.5
-1.3
-2.4
-3.1
Leather and foo
twear -0
.1
-0.3
-0.5
-0.6
Wood and pape
r -1
.1
-2.3
-2.8
-3.0
Rubber and plas
tic products -0
.2
-0.4
0
-0.2
Other manufact
uring a 0
.1
-0.4
-0.7
-0.5
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? Aerospace equipment is the only high-tech sector which has increased net
exports since 1980, but even this sector has fallen from its 1982 peak.
? Net exports of the three categories of electronics and electrical equipment used
to be highly positive but has now fallen into deficit.
? The United Kingdom has long been a net importer of office machinery and data-
processing equipment, but the magnitude of net imports has risen sharply since
1980.
? Only basic chemicals and aerospace equipment have increased their market
share since 1975. The aerospace market share, however, has been declining
sharply since 1980.
Table 43
United Kingdom: Trade Balance in
High-Technology Goods, 1975-84
Total
1.8
3.8
2.3
-0.8
Share of world exports (percent) 9.2
10.2
8.9
8.0
Basic industrial chemicals -0.1
1.2
0.8
0.7
Pharmaceuticals
0.1
0.3
0.2
0.2
Office machinery and data-
processing equipment
-0.1
-0.4
-1.1
-1.4
Telecommunications equipment 0.3
0.4
0.3
0.1
Consumer electronics -0.1
-0.4
-0.6
-0.5
Other electrical equipment
0.9
1.2
0.5
-0.9
Scientific instruments
0.1
0.4
0.2
-0.2
Aerospace equipment
0.7
1.1
2.0
1.2
High-Technology Goods The United Kingdom is a net exporter in only four out of the eight high-technology
sectors and, in the last 10 years, has lost world market share in six out of eight
sectors:
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Productivity Trends Huge cuts in manufacturing employment have helped the United Kingdom
register large gains in manufacturing productivity since 1980:
? From 1980 to 1984, UK manufacturing productivity has grown 5 percent a year,
about double the rate in West Germany and France. In the 1970s, French and
West German productivity growth was faster.
? British labor productivity growth has been much faster in the declining
manufacturing sector than in the rapidly growing service sector.
Figure 12
United Kingdom: Average Annual Productivity Growth, 1971-84
Total economy
Manufacturing
Total services
Market services
Government services
Agriculture, fuels, and
construction
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Investment and Investment in the British manufacturing sector is so low that the aggregate capital
Profit Trends stock is barely replenishing itself:
? Total fixed capital formation as a share of GDP has fallen only slightly, from
18.6 percent in 1970 to 17.5 percent in 1984.
? In the manufacturing sector, however, fixed capital formation has dropped about
50 percent. It constituted 21.4 percent of total investment in 1970 but only 11.7
percent of total investment in 1984.
? Gross capital stock in the manufacturing sector (measured at replacement cost)
has grown only 0.3 percent a year (1979-84), compared with a growth rate of 2.3
percent a year for nonmanufacturing capital stock over the same period.
Table 44
United Kingdom: Investment by Sector
as a Share of Total Investment, 1970-84
Agriculture 3.0 2.8 2.5 2.6 2.6 NA
Fuels 10.0 13.7 13.6 14.0 13.1 11.8
Manufactured products 21.4 16.2 15.5 11.4 10.9 11.7
Construction 1.6 1.6 1.1 1.1 1.0 NA
Market services 50.2 52.1 57.2 60.0 60.6 NA
Government services 13.8 13.6 10.1 10.9 11.8 12.3
Total investment as share of GDP 18.6 19.5 17.5 16.4 16.6 17.5
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Low-Technology The United Kingdom has been shifting investment resources from low-technology
Industries industries toward high-tech sectors:
? As a share of GDP, investment in low-tech industries has fallen 40 percent in
seven years.
? All of this decline can be accounted for by the collapse in investment in the iron
and steel industry. In 1975, investment in the iron and steel industry exceeded 16
percent of total manufacturing investment. In 1982 the figure was only 3.1
percent. Preliminary data for 1983-85 indicate no upturn.
Table 45
United Kingdom: Low-Technology Sectors'
Investment as a Share of Total .
Investment in Manufacturing, 1975-82
Nonferrous metals 1.
9
1.7
1.5
1.2
Nonmetallic mineral products 5.
2
6.8
5.1
5.1
Low-tech chemicals 3.
6
4.0
5.4
5.6
Industrial and agricultural 6.
machinery
9
7.2
7.2
7.3
Railway rolling stock 0.
2
0.3
0.3
0.2
Other transportation equipment 0.
1
0.1
0.1
0.1
Other metal products 4.
8
6.2
7.5
7.0
Food and beverages 14.
6
13.7
15.2
16.1
Textiles and clothing 5.
4
3.8
3.1
3.3
Leather and footwear 0.
4
0.3
0.3
0.4
Wood and paper 7.
4
9.9
9.4
8.8
Rubber and plastic products 2.
8
3.8
3.6
3.7
Other manufacturing a 0.
6
0.8
0.5
0.7
Ratio of low-tech investment to 76.
total manufacturing
investment
8
74.0
74.2
73.1
Ratio of low-tech investment to 12.
total investment
4
Ratio of low-tech investment to 2.
GDP
4
O
25X1
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High-Technology Investment in high-technology industries has been growing as a share of manufac-
Industries turing investment, but has fallen sharply as a share of total investment and as a
share of GDP:
? Basic industrial chemicals has seen a shrinkage of its share of investment, but
pharmaceuticals has seen a large increase.
? The electronics/electrical equipment sector has sharply increased its share of
total manufacturing investment. Preliminary data for 1983-85 indicate that this
trend is continuing.
Table 46
United Kingdom: High-Technology Sectors'
Investment by Industry as a Share of Total
Investment in Manufacturing, 1975-82
Office machinery and data- 0.6
processing equipment
0.8
0.8
0.9
Telecommunications equipment 1.9
3.0
3.5
3.8
Consumer electronics 0.9
1.3
1.3
1.4
Other electrical equipment 3.0
3.2
3.3
3.6
Scientific instruments 1.1
0.9
0.8
1.1
Ratio of high-tech investment 23.2
to total manufacturing
investment
26.0
25.8
26.9
Ratio of high-tech investment 3.8
to total investment
4.0
3.3
3.1
Ratio of high-tech investment 0.8
to GDP
0.7
0.5
0.5
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Rates of Return Profit shares and rates of return on capital in the manufacturing sector plummeted
in the 1970s, presumably dragging down investment shares with them:
? Profit shares in the manufacturing sector (measured as gross operating surplus
divided by gross value added) fell from nearly 25 percent in the early 1970s to
about 20 percent in the early 1980s. Gross operating surplus as a share of gross
capital stock fell nearly one-half, from 9.1 percent in 1971 to 5.4 percent in 1981.
? Profit shares in the service sector did not fall nearly as much as in manufactur-
ing between 1971 and 1972.
? Profit shares have staged a dramatic turnaround in the last several years. There
has been as yet no great increase in aggregate investment shares, but the decline
in manufacturing's share of total investment seems to have been arrested.
Table 47
United Kingdom: Profit Shares
and Rates of Return, 1971-83
Gross operating surplus/ 32.5
gross value added
Gross operating surplus/ 48.9
gross value added
Gross operating surplus/ 24.8
gross value added
Gross operating surplus/ 9.1
gross capital stock
27.7
21.1
33.5
34.5
45.$
44.6
45.6
58.2
18.5
20.0
23.3
25.9
5.9
5.6
6.2
7.2
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Summary
Italy
As in the United Kingdom, the 1970s Italian policy of rescuing badly performing
companies by absorbing them into the public sector has shifted toward a more
market-oriented approach, but one which does not as strongly emphasize privatiza-
tion. The Italian manufacturing sector has undergone much less restructuring than
has taken place in the United Kingdom or elsewhere in Western Europe:
? Manufacturing accounts for a larger portion of GDP than it did 15 years ago.
? Italian low-tech industries have been growing almost as fast as the high-
technology industries, and both are growing faster than GDP.
? There does not appear to be any shift of investment resources toward the high-
tech industries.
? Low-tech industries have been Italy's star performers in international trade.
Italy, alone among the Big Four, has a greater portion of world trade in
manufactured goods now than it did 10 years ago. This achievement is due to
huge increases in exports of low-technology products such as textiles, clothing,
footwear, and furniture. The high-tech industries have lost market share in six
out of eight categories.
? As in the other major West European countries, rates of manufacturing-sector
growth, productivity growth, investment rates, and employment growth have all
been much lower in the last decade or so than previously.
? Although growing faster than the rest of the economy, the manufacturing sector
is still not providing any new jobs. All of the new job creation in the last decade
has come from the low-productivity service sector.
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Shifts in Production The Italian manufacturing sector, alone among the Big Four, accounts for a
greater share of GDP now than in 1970:
? The share of GDP originating in the manufacturing sector reached a peak of
31.5 percent in 1980 but has slipped somewhat since then.
? The share of GDP originating in the production of services has risen 4
percentage points from 1970 to 1984. Most of this gain came from growth in
market services, not government services.
Table 48
Italy: Value Added by Sector
as a Share of GDP,
1980 Prices, 1970-84
Agriculture 7.4 6.9
6.6
6.1 6.5 6.2
Fuels 5.0 4.8
4.8
4.4 4.3 4.3
Manufactured products 27.9 27.3
31.5 2
9.1 28.1 28.8
Construction 10.1 8.4
7.9
7.4 7.4 7.1
Market services 36.9 39.2
36.5 4
0.6 41.1 53.6
Government services 12.7 13.4
12.7 1
2.4 12.6
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Low-Technology Italy -has seen less shifting between the low- and high-technology industries than
Industries the other Big Four countries, but this is because Italy's low-tech firms have
continued to expand and not because its high-tech firms have been stagnant:
? Low-tech manufacturing output (in value-added terms) grew about 2.6 percent a
year between 1975 and 1984, slightly faster than real GDP (2.3 percent a year).
? Italy also has seen less shifting within the low-tech group than has occurred
elsewhere in the Big Four. There has been no massive decline or increase in the
relative size of any of the low-tech sectors, such as the huge fall in UK steel pro-
duction or the huge increase in West German motor vehicle production that
occurred through the early 1980s.
Table 49
Italy: Low-Technology Sectors'
Value Added as a Share of Total Value Added
in Manufacturing, 1975-84
Iron and steel 5.8
5.7
5.2 5.4
Nonferrous metals 1.2
1.4
1.3 1.3
Nonmetallic mineral products 6.5
7.4
7.4 6.7
Industrial and agricultural 10.1
machinery
10.4
11.2 9.4
Road motor vehicles and parts 8.4
7.3
7.3
Shipbuilding 1.1
0.7
0.7 9.4-
Railway rolling stock 0.4
0.4
0.5
Other transportation equipment 0.5
0.7
0.8
Other metal products 6.8
7.1.
7.2 5.8
Food and beverages 12.1
10.9
11.4 11.6
Textiles and clothing 9.4
9.9
9.6 9.6
Leather and footwear 2.0
2.3
2.2 2.2
Wood and paper 7.6
8.4
8.0 8.5
Rubber and plastic products 4.2
4.4
4.1 4.1
Other manufacturing b 0.7
0.8
0.8 0.7
Ratio of low-tech value added 80.3
to total manufacturing
81.3
81.2 78.3 a
Ratio of low-tech value added 21.9
to GDP
a Estimate.
b Includes statistical discrepancy.
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High-Technology High-technology industries have been growing at only a slightly faster pace than
Industries the low-technology industries:
? Output in high-tech industries grew about 3.8 percent a year between 1975 and
1984, compared with 2.6 percent a year for low-tech sectors.
? There has been considerable shifting within the high-tech group. Production of
basic chemicals has fallen sharply, while pharmaceuticals and the electronics/
electrical equipment sector have grown much faster than the average.
? The aerospace industry increased its share of total manufacturing in the period
1976-81, but remains very small.
much faster than in West Germany or the United Kingdom.
? High-tech manufacturing output has been growing about as fast as in France,
Table 50
Italy: High-Technology Sectors'
Value Added as a Share of Total Value Added
in Manufacturing, 1975-84
Basic industrial chemicals
5.2
4.2
3.4
3.9
Pharmaceuticals
2.6
2.6
2.7
3.5
Office machinery and data-
processing equipment
1.2
1.1
1.2
1.8
Telecommunications equipment
1.7
1.7
Consumer electronics
9.1
1.9
2.0
10.3
Other electrical equipment
5.4
5.6
Scientific instruments
0.9
0.9
1.0
1.2
Aerospace equipment
0.7
0.9
1.2
1.0 a
Ratio of high-tech value added
to total manufacturing
19.7
18.7
18.8
21.7 8
Ratio of high-tech value added
to GDP
5.4
81 Confidential
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Employment Shifts Total Italian employment has grown between 1970 and 1984, unlike the experi-
ence in West Germany and the United Kingdom:
? Employment in the manufacturing sector, despite above-average growth in
output, declined by about 200,000 jobs from 1970 to 1983.
? The agricultural sector lost far more jobs-over 1 million.
? The lost manufacturing and agricultural jobs were more than matched by gains
in service-sector employment. Market-service-sector jobs have risen by almost 2
million since 1970, and government-service jobs by about 1 million.
? Italy's increased employment from 1970 to 1984 was not sufficient to absorb
increases in the labor force; the unemployment rate almost doubled from 5.3 to
10.2 percent.
Table 51
Italy: Employment by Sector as a Share of
Total Employment, 1970-84.
Total employment (millions) 19.8 20.0 20.9 20.9 21.0 21.0
Agriculture
Fuels
Manufactured products 27.7 28.1 27.1 26.1 25.3 32.8
Construction 10.2 8.7 8.4 8.4 8.2
Market services 31.2 33.1 35.3 37.1 37.9 55.8
Government services 11.8 14.0 15.1 15.5 15.7
18.2 15.2 13.2 12.0 12.0 11.4
0.9 0.9 0.9 0.9 0.9
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Low-Technology Despite the growth in low-tech output, the number of jobs in these traditional
Industries industries has been declining:
? Few of the low-tech industries had employment gains over this period. Hardest
hit by job losses were transportation equipment and clothing, textiles, leather,
and footwear.
? Contrary to the experience in the rest of the Big Four, Italian employment rose
in the production of iron, steel, and nonferrous metals.
Table 52
Italy: Employment in
Low-Technology Sectors, 1975-83
Share of total manufacturing 82.7 82.3 82.3 82.7 a
employment (percent)
Iron and steel 266 322 328 382
Nonferrous metals 77 79 77
Nonmetallic minerals 388 377 378 372
Low-tech chemicals 181 168 158 140 a
Industrial and agricultural 528 566 579 558
machinery
Shipbuilding 69 65 65 514 a
Railway rolling stock 19 23 26
Other transportation equipment 35 45 46
Other metal products 416 416 411 398
Food and beverages 398 395 395 397
Textiles and clothing 866 764 738 902
Leather and footwear 180 185 177
Wood and paper 460 456 452 446
Rubber and plastic products 236 239 229 223
Other manufacturing b 62 61 56 55
a Estimate.
b Includes statistical discrepancy.
25X1
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High-Technology High-tech manufacturing sectors have not been a source of new employment:
Industries
? Employment in high-tech industries fell by 60,000 jobs from 1975 to 1983. The
aerospace equipment and scientific instruments industries apparently were the
only net contributors of new jobs.
Table 53
Italy: Employment in
High-Technology Sectors, 1975-83
Share of total manufacturing
employment (percent)
17.3
17.7
17.7
17.3 a
Office machinery and data-
processing equipment
59
46
46
47 a
Telecommunications equipment
109
101
Consumer electronics
536
125
122
518
Other electrical equipment
322
326
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Trade in Italy's trade performance in manufactured goods improved overall, but, unlike
Manufactures those of the other Big Four, Italy's low-tech industries gained while its high-tech
industries faltered:
? Italy enjoyed a huge improvement, almost 100 percent, in its trade balance in
manufactured goods from 1975 to 1984.
Table 54
Italy: Trade Balance in
Manufactured Goods, 1975-84
Italy, unlike the other Big Four countries, was able to increase its share of the
world export market for manufactured goods, and now exports almost as many
manufactured goods as the United Kingdom.
Figure 13
Italy: Share of World Exports of Manufactured Goods,
1975 and 1984
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Low-Technology Goods Net exports of Italian low-tech products more than doubled between 1975 and
1984, while their share of world market exports rose from 6.7 to 7.2 percent:
? Textiles and clothing, leather and footwear, and wood products all displayed
large increases in both net exports and world market share.
? Italian leather and footwear accounted for 35.4 percent of the world market in
1984, making it the primary exporter by far in that category.
? Textiles and clothing held almost 12 percent of the world market in 1984, up
from 10.4 percent in 1975.
? Wood products also showed a large gain in net exports and increased its market
share from 5 to nearly 6 percent.
Table 55
Italy: Trade Balance in
Low-Technology Goods, 1975-84
Total
9.9
15.4
19.8
20.8
Share of world exports (percent)
6.7
7.2
7.2
7.2
Iron and steel
1.1
-0.3
1.5
0.9
Nonferrous metals -
0.7
-2.4
-1.1
-1.3
Nonmetallic mineral products
0.7
2.2
1.8
2.0
Low-tech chemicals
0
-1.1
-1.1
-1.1
Industrial and agricultural
machinery
2.8
6.3
6.6
6.6
Road motor vehicles and parts
1.7
-1.2
-1.4
-0.6
Other transportation equipment
0
0.5
0.6
0.6
Other metal products
0.8
2.3
2.3
2.0
Food and beverages -
2.5
-4.7
-4.1
-3.6
Textiles and clothing
2.7
5.3
5.6
6.3
Leather and footwear
1.6
3.5
3.6
3.7
Wood and paper
0.7
2.6
2.3
2.2
Rubber and plastic products
0.4
0.7
0.8
0.7
Other manufacturinga
0.6
1.7
2.4
2.4
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High-Technology Goods Italy's trade position in high-tech goods worsened in terms of both net exports and
world market share:
Italy's overall share of the world high-tech market slipped from 4.2 to 3.7
percent, despite the market share gains of basic chemicals and aerospace
equipment.
? Italy has a much smaller share of the world high-tech market than any of the
other Big Four countries.
? Consumer electronics, pharmaceuticals, and office machinery and data-
processing equipment all became net import items during this period. Only
telecommunications equipment and aerospace equipment increased net exports,
and even there the gains were slight.
Table 56
Italy: Trade Balance in
High-Technology Goods, 1975-84
Share of world exports (percent) 4
.2
3.7
3.9
3.7
Basic industrial chemicals -0
.1
-1.5
-0.6
-0.5
Pharmaceuticals 0
0
0
-0.1
Office machinery and data- 0
processing equipment
0.2
-0.1
-0.5
Telecommunications equipment 0
.1
0
0.1
0.2
Consumer electronics 0
.1
-0.6
-0.6
-0.5
Other electrical equipment 0
.6
0.2
1.1
0.6
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Productivity Trends Labor productivity growth over the period 1971-83 was only about one-third that
of the 1950s and 1960s:
? Italian productivity grew at an average annual rate of 5.2 percent a year between
1953 and 1970, compared with 1.8 percent in the period 1971-83.
? Productivity grew about 2.6 percent a year in the manufacturing sector between
1970 and 1983.
? Productivity in the service sector-private and public-grew at only one-fourth
that rate. Productivity actually declined in the public sector in this period.
? Productivity growth in the three smaller sectors-agriculture, fuels, and con-
struction-was much faster than the national average.
Figure 14
Italy: Average Annual Productivity Growth, 1971-83
Total economy
Manufacturing
Total services
Market services
Government services
Agriculture, fuels, and
construction
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Investment and As in the other Big Four countries, total fixed capital formation has fallen sharply
Profit Trends in relative terms:
? Investment as a share of GDP has fallen from 21.4 percent of GDP in 1970 to
19.1 percent in 1985.
? Fixed capital formation in the industrial sectors-fuels, manufactured products,
and construction-has fallen from 6.3 percent of total GDP in 1970 (29.3
percent of total investment) to 4.4 percent of GDP (23.9 percent of total
investment) in 1983.
? Investment in the service sector, especially nongovernmental services, has been
taking an increasing share of total investment resources.
? Unlike in the other Big Four countries, aggregate profit rates did not appear to
fall much, if any, in the 1970s.
? The ratio of gross operating surplus to gross value added in industry rose from 34
percent in the early 1970s to 37 percent in the early 1980s.
Table 57
Italy: Investment by Sector as a Share
of Total Investment, 1970-85
1970 1975 1980 1982
1983 1
985
Agriculture 6.2 7.2 7.1 6.7
6.8
NA
Fuels 7.9 7.6 8.6
NA
Manufactured products 20.2 21.1 19.1 26.0
23.9
NA
Construction 1.2 1.1 1.2
NA
Market services 53.8 53.2 55.0 56.7
58.3
NA
Government services 10.7 9.8 9.0 10.6
11.0
NA
Total investment as share of GDP 21.4 20.6 19.8 19.0
18.4 1
9.1
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Low-Technology Unlike the other Big Four countries, Italy is not shifting its investment away from
Industries low-technology industries:
? The ratio of investment in low-tech sectors to total manufacturing investment
has held steady overall.
? Road motor vehicles, industrial and agricultural machinery, and food and
beverages all showed substantial gains in investment shares.
? Iron and steel and low-tech chemicals both experienced large decreases in
investment shares.
Table 58
Italy: Low-Technology Sectors'
Investment as a Share of Total
Investment in Manufacturing, 1975-82
Iron and steel
14.5
8.9
9.1
8.3
Nonferrous metals
2.0
1.9
2.5
2.0
Nonmetallic mineral prod
ucts 7.6
11.5
11.9
9.7
Industrial and agricultura
machinery
l 5.6
7.1
7.9
6.3
Road motor vehicles and
parts 7.9
8.0
7.0
11.1
Shipbuilding
0.6
0.3
0.4
0.4
Railway rolling stock
0.3
0.5
0.6
0.8
Other transportation equi
pment 0.5
1.0
1.1
0.9
Other metal products
6.4
7.2
6.8
6.2
Food and beverages
7.3
9.1
9.7
8.9
Textiles and clothing
7.3
8.4
8.4
6.9
Leather and footwear
0.8
1.2
1.3
1.1
Wood and paper
5.9
8.1
7.9
6.1
Rubber and plastic produ
cts 2.9
4.7
4.2
3.9
Other manufacturing a
0.4
0.7
0.4
0.5
Ratio of low-tech investm
total manufacturing inves
ent to 76.0
tment
81.7
82.4
76.7
Ratio of low-tech investm
total investment
ent to 16.0
Ratio of low-tech investm
GDP
ent to
a Includes statistical discr
b Estimate.
epancy.
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High-Technology Investment in the high-tech sectors as a group has decreased as a share of total
Industries manufacturing investment:
? The drastic fall in basic chemicals' share pulled down the high-tech sectors'
share of manufacturing investment; all the other high-tech sectors experienced
improved investment shares between 1975 and 1982. Despite the share decline,
the amount invested in basic chemicals increased 12 percent.
have also experienced increases.
? Office machinery and data-processing equipment has increased sharply both in
its share and in the amount invested. Pharmaceuticals and aerospace equipment
Table 59
Italy: High-Technology Sectors'
Investment as a Share of Total
Investment in Manufacturing, 1975-82
Office machinery and data-
processing equipment
0.8
1.3
1.3
8.2
Other electrical equipment
3.3
4.6
4.0
3.5
Scientific instruments
0.4
0.7
0.6
0.5
Aerospace equipment
0.5
1.2
1.6
1.6
Ratio of high-tech investment
to total manufacturing
investment
24.0
18.3
17.6
23.3
Ratio of high-tech investment
to total investment
5.1
3.5
3.0
3.9 a
Ratio of high-tech investment
to GDP
1.0
0.7
0.6
0.7 a
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Appendix A
Definition of
High-Technology Industries
The definition of high technology used here is based on one of three definitions de-
veloped by the Bureau of Labor Statistics (BLS).' For this study, high-tech
industries are defined as those that have ratios of research and development
expenditures to sales greater than twice the average for all manufacturing
industries (the average ratio for the United States is 3.1 percent). Any definition of
high technology is somewhat arbitrary; we start with this one because it seems
plausible, because it is widely used in the United States, and because it includes
those industries most commonly mentioned by European analysts. Of the three
high-tech groups defined by the BLS, this definition includes the fewest industries.
Those included are:
Standard Industrial Industry
Classification Code
357 Office, computing, and accounting machines
366 Communications equipment
On a subjective basis, we added to this list basic industrial chemicals and scientific
instruments. These two sectors are included in the other BLS definitions of high-
tech industries. Because of data problems, the electrical equipment category could
not always be disaggregated into its high-tech and low-tech components. Since the
low-tech component was estimated to be small, all electrical equipment was
classified as high technology.
' U.S., Congress of the United States, Office of Technology Assessment, Chapter 2, "Definition and
Analysis of High-Technology Industry", Technology, Innovation, and Regional Economic Develop-
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The high-tech sectors used for our data analysis, as identified by their NACE
(General Industrial Classification of Economic Activities within the European
Communities) codes are:
3300
Office machinery and data-processing equipment
3440
Telecommunications equipment
3410,
3430,
3470
3420,
3460,
Excluding the added sectors, this definition matches the BLS grouping since
electronic components and accessories are included in the category for other
electrical equipment, and guided missiles and space vehicles are included in the
aerospace equipment category. All other manufacturing sectors are classified as
"low-technology" sectors.
Confidential 98
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Appendix B
The primary data source was the Eurostat Annual Industrial Survey data bank,
which contains industrial-sector data on members of the European Community.
The EC's NACE (General Industrial Classification of Economic Activities within
the European Communities) coding system was adopted. The EC National
Accounts data, published in Eurostat National Accounts ESA: Detailed Tables by
Branch for 1984 and for 1985, were also used extensively.
The Eurostat National Accounts gave the aggregate sectoral composition value
added in 1980 prices for each European country. The industrial survey gave
industry-level value added in current prices. The industry-share computations
shown in this paper are thus in terms of nominal prices. To compute industry
value-added shares of GDP we assumed that price movements in each industry
equaled the aggregate movements in manufacturing prices.
The OECD publications National Accounts: Detailed Tables, Vol. II for 1983 and
for 1985, Quarterly National Accounts Statistics for 1984 and for 1985,
Industrial Structure Statistics for 1984 and for 1985, and the Economic Outlook
for December 1985 and for May 1986, provided data for the United States, Japan,
and the smaller West European countries, as well as supplementary data on the
Big Four countries. In particular, OECD data were used for standardized
employment rates across the Big Four.
Also supplementing the EC data were country source data. Various statistical
publications and data banks from West Germany, France, England, Italy, the
United States, and Japan were used, primarily to obtain data for later years than
those published by the EC. The country source data were adjusted to conform to
the NACE coding system
All trade data are from the United Nations trade tapes, obtained by using
UNTAPE in CIA's TRADAR system. UN trade data are originally from country
sources.
The data for trade in manufactured goods cover SITC codes 5-9, as is usual, but
also some categories of SITC codes 0-1 (food and beverages). We included those
food and beverage categories that involved significant amounts of processing in
order to reach a definition of manufactured goods consistent with the NACE code
definition of manufacturing.
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